UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 16, 2000
Commission File No. 0-24982
SILVER DINER, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-3234411
- ------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S Employer Identification Number)
Incorporation or organization)
11806 Rockville Pike, Rockville, Maryland, 20852
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(Address of principal executive offices)
(301) 770-0333
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(Registrant's telephone number)
SILVER DINER DEVELOPMENT, INC.
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(Former name, former address and former fiscal year, if changed since the last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.00074 par value, outstanding as of August 25, 2000:
11,622,220 shares
SILVER DINER, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of July 16, 2000 (unaudited)
and January 2, 2000 3
Consolidated Statements of Operations for the
Twelve and Twenty Eight Weeks Ended July 16, 2000 (unaudited)
and July 18, 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the
Twenty Eight Weeks Ended July 16, 2000 (unaudited) and July 18,
1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
2
Item 1. Financial Statements
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
July 16, January 2,
2000 2000
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,871,588 $ 1,122,755
Marketable securities available for sale - 813,452
Inventory 131,384 134,698
Prepaid rent - 158,447
Incentive rebates 31,722 108,928
Prepaid expenses and other current assets 258,040 146,570
-------------- --------------
Total current assets 2,292,734 2,484,850
Property, equipment and improvements, net 16,066,557 15,583,903
Due from related parties 118,798 142,293
Goodwill, net 2,015,244 2,114,587
Deposits and other 450,221 268,900
-------------- --------------
Total assets $ 20,943,554 $ 20,594,533
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,478,224 $ 1,757,801
Note payable - current portion 17,800 267,000
-------------- --------------
Total current liabilities 2,496,024 2,024,801
Deferred rent liability 1,209,329 1,295,338
Long-term Note Payable 1,249,200 -
-------------- --------------
Total liabilities 4,954,553 3,320,139
Stockholders' equity:
Preferred stock, at July 16, 2000 and January 2, 2000, $.001 par
value, 1,000,000 shares authorized, none issued - -
Common stock, $.00074 par value, 20,000,000 shares authorized; at
July 16, 2000, 11,622,220 shares issued and outstanding; at January
2, 2000, 11,585,510 shares issued and outstanding 8,585 8,563
Additional paid-in capital 30,829,069 30,773,262
Unearned compensation (176,301) (227,489)
Treasury Stock (162,988) (101,239)
Accumulated deficit (14,509,364) (13,178,703)
-------------- --------------
Total stockholders' equity 15,989,001 17,274,394
-------------- --------------
Total liabilities and stockholders' equity $ 20,943,554 $ 20,594,533
============== ==============
Accompanying notes are an integral part of these financial statements
3
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Twelve Weeks Ended Twenty Eight Weeks Ended
July 16, July 18, July 16, July 18,
2000 1999 2000 1999
------------- ------------- -------------- --------------
Net sales $ 7,522,294 $ 6,819,461 $ 16,362,473 $ 15,539,191
Restaurant costs and expenses
Cost of sales 2,062,485 1,783,764 4,388,479 4,050,579
Labor 2,593,047 2,292,128 5,676,662 5,274,008
Operating 1,429,307 1,321,167 3,141,948 2,756,761
Occupancy 693,349 668,619 1,581,849 1,554,213
Depreciation and amortization 285,679 263,865 648,874 630,288
Preopening Expenses 158,691 - 184,354 -
------------- ------------- -------------- --------------
Total restaurant costs and expenses 7,222,558 6,329,543 15,622,166 14,265,849
------------- ------------- -------------- --------------
Restaurant operating income 299,736 489,918 740,307 1,273,342
General and administrative expenses 802,452 781,583 1,902,290 1,807,313
Depreciation and amortization 84,681 72,616 195,649 171,915
------------- ------------- -------------- --------------
Operating loss (587,397) (364,281) (1,357,632) (705,886)
Interest expense 20,573 5,763 27,634 13,446
Investment income (26,269) (30,373) (54,605) (67,167)
------------- ------------- -------------- --------------
NET LOSS $ (581,701) $ (339,671) $ (1,330,661) $ (652,165)
============= ============= ============== ==============
Basic and diluted loss per common share $ (0.05) $ (0.03) $ (0.12) $ (0.06)
Weighted average shares outstanding 11,605,534 11,769,885 11,612,723 11,769,885
============= ============= ============== ==============
Accompanying notes are an integral part of these financial statements
4
SILVER DINER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Twenty Eight Weeks Ended
July 16, 2000 July 18, 1999
------------- -------------
Cash flows from operating activities
Net loss $ (1,330,661) $ (652,165)
Adjustments to reconcile net loss to net cash provided by (used in)
operations
Depreciation and amortization 844,523 802,203
Compensation expense - stock options and deferred compensation 89,714 30,378
Changes in operating assets and liabilities
Inventory 3,314 919
Prepaid rent 158,447 182,796
Incentive rebates 77,206 4,867
Prepaid expenses and other current assets (111,470) 25,927
Deposits and other (103,329) (119,585)
Accounts payable and accrued expenses 720,423 (282,297)
Deferred rent liability (86,009) (22,394)
Due from related parties 23,495 (12,426)
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Net cash (used in) provided by operating activities 285,653 (41,777)
-------------- -------------
Cash flows from investing activities
Purchases of property and equipment (1,305,826) (241,662)
Maturities of available for sale marketable securities 813,452 746,597
-------------- -------------
Net cash provided by (used in) investing activities (492,374) 504,935
-------------- -------------
Cash flows from financing activities
Net proceeds from sale of common stock 17,303 -
Repurchase of common stock from employees - (10,000)
Purchase of treasury stock (61,749) -
Proceeds from long-term debt 1,000,000 -
-------------- -------------
Net cash (used in) provided by financing activities 955,554 (10,000)
-------------- -------------
Net increase/(decrease) in cash and cash equivalents 748,833 453,158
Cash and cash equivalents at beginning of the period 1,122,755 1,611,757
-------------- -------------
Cash and cash equivalents at end of the period $ 1,871,588 $ 2,064,915
============== =============
Supplemental disclosure of cash flow information:
Interest paid $ 27,634 $ 13,446
============== =============
Noncash investing and financing:
Construction payables included in accounts payable and accrued expenses
$ 191,531 $ -
============== =============
Accompanying notes are an integral part of these financial statements
5
SILVER DINER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWELVE AND TWENTY EIGHT WEEKS ENDED
JULY 16, 2000 AND JULY 18, 2000
(UNAUDITED)
1. Organization and Basis of Presentation
The accompanying unaudited consolidated financial statements of Silver Diner,
Inc., a Delaware Corporation, and its wholly owned subsidiary, Silver Diner
Development, Inc. ("SDDI"), (collectively the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the twelve and twenty eight week periods ended
July 16, 2000 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2000. All significant intercompany balances and
transactions have been eliminated in consolidation. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended January 2, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD LOOKING DISCLOSURE
Certain information included herein contains statements that are forward-
looking, such as statements relating to plans for future expansion and other
business development activities as well as operating costs, capital spending,
financial sources and the effects of competition. Such forward-looking
information is subject to changes and variations which are not reasonably
predictable and which could significantly affect future results. Accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These changes and variations which could
significantly affect future results include, but are not limited to, those
relating to development and construction activities, including delays in opening
new Diners, acceptance of the Silver Diner concept, the quality of the Company's
restaurant operations, the adequacy of operating and management controls,
dependence on discretionary consumer spending, dependence on existing
management, inflation and general economic conditions, and changes in federal or
state laws or regulations.
GENERAL
The Company currently operates 12 diners, 10 in the Washington/Baltimore
metropolitan area, one in Virginia Beach, Virginia, and one in Cherry Hill, New
Jersey. Currently, there is one additional Silver Diner under construction in
the Washington/Baltimore metropolitan area. The Company is pursuing additional
locations throughout the Mid-Atlantic region for restaurant openings. The
Company plans to expand the Silver Diner chain nationwide through additional
openings of Company-owned restaurants and possibly through the development of
franchise or joint venture relationships.
6
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of items included
in the consolidated condensed statements of operations for the periods
indicated:
Twelve Weeks Ended Twenty Eight Weeks Ended
July 16, July 18, July 16, July 18,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Restaurant costs and expenses:
Cost of sales 27.4% 26.2% 26.8% 26.1%
Labor 34.5% 33.6% 34.7% 33.9%
Operating 19.0% 19.4% 19.2% 17.7%
-------- -------- -------- --------
Restaurant operating margin 19.1% 20.8% 19.3% 22.3%
Occupancy 9.2% 9.8% 9.7% 10.0%
Depreciation and amortization 3.8% 3.9% 4.0% 4.1%
Preopening Expenses 2.1% - 1.1% -
-------- -------- -------- --------
Restaurant operating income 4.0% 7.1% 4.5% 8.2%
General and administrative expenses 10.7% 11.5% 11.6% 11.6%
Depreciation and amortization 1.1% 1.1% 1.2% 1.1%
-------- -------- -------- --------
Operating loss (7.8%) (5.5%) (8.3%) (4.5%)
Interest expense 0.3% 0.1% 0.2% 0.1%
Investment income (0.3%) (0.4%) (0.3%) (0.4%)
-------- -------- -------- --------
Net Loss (7.8%) (5.2%) (8.2%) (4.2%)
======== ======== ======== ========
Net sales for the twelve weeks ended July 16, 2000 ("Second Quarter 2000")
increased $702,833, or 10.3%, to $7,522,294, compared to $6,819,461 for the 12
weeks ended July 18, 1999 ("Second Quarter 1999"). Year-to-date, net sales for
the twenty-eight weeks ended July 16, 2000 ("2000 YTD Period") increased
$823,282, or 5.3%, to 16,362,473, compared to $15,539,191 for the twenty-eight
weeks ended July 18, 1999 ("1999 YTD Period"). The increase for Second Quarter
2000 was primarily attributable to sales generated by New Stores ($340,942) and
a 6.5% increase in average guest check. The increase for the 2000 YTD Period
was the result of similar trends.
Comparable Silver Diner sales (sales for Silver Diners open throughout both
periods being compared, excluding the initial six months of operations during
which sales are typically higher than normal) for the 2000 Second Quarter
increased 5.2% compared to the second quarter of 1999 and for the 2000 YTD
Period increased 3.1% compared to the 1999 YTD Period. The increases in
comparable sales for the quarter were the continuing result of the
implementation of a new menu, coupled with a price increase of approximately
5.0% and direct coupon mailing.
7
Cost of sales, primarily food and beverage costs increased to 27.4% of net
sales for Second Quarter 2000, compared to 26.2% of net sales for Second Quarter
1999. Cost of sales for the 2000 YTD Period were 26.8% of net sales, compared to
26.1% of net sales for the 1999 YTD Period. The increase from the Second Quarter
1999 was primarily attributable to the implementation of a consumer value-
oriented menu. The impact of the Virginia Beach opening was approximately 0.1%
for both the Second Quarter 2000 and the 2000 YTD Period.
Labor, which consists of restaurant management and hourly employee wages and
bonuses, payroll taxes, workers' compensation insurance, group health insurance
and other benefits, increased to 34.5% of net sales in Second Quarter 2000
compared to 33.6% of net sales for Second Quarter 1999. For the 2000 YTD
Period, labor expense as a percentage of sales increased from 33.9% in the 1999
YTD Period to 34.7%. Excluding the impact of the Virginia Beach opening, labor
expenses as a percentage of net sales were 33.6% (flat to last year, despite
higher average hourly wages) for the Second Quarter 2000 and would have improved
by 0.4% for the 2000 YTD Period. Further, the 2000 YTD Period was adversely
impacted by higher average hourly wages.
Operating expenses, which consist of all restaurant operating costs other than
cost of goods, labor and occupancy, including supplies, utilities, repairs and
maintenance and advertising, decreased to 19.0% of net sales for Second Quarter
2000, compared to 19.4% for Second Quarter 1999. For the 2000 YTD Period,
operating expenses increased from 17.7% in 1999 to 19.2%. The decrease in
operating expenses in the Second Quarter 2000 was largely the result of lower
marketing expenses partially offset by increases in supply items and recruitment
and retention activities directed toward hourly staff. The increase for the 2000
YTD Period was principally due to higher marketing costs in the first quarter
combined with higher repairs and maintenance, utility and unit staffing expenses
throughout the twenty-eight week period. Additionally, the opening of the
Virginia Beach unit unfavorably affected the operating expense performance of
the Company for the Second Quarter 2000 and the 2000 YTD Period by 0.3% and
0.1%, respectively.
Occupancy, which is composed primarily of rent, property taxes and property
insurance, increased $24,730 for Second Quarter 2000 compared to Second Quarter
1999. The increase of $27,636 for the 2000 YTD Period over the 1999 YTD Period
was due primarily to New Store facility costs. As a percentage of net sales,
occupancy has decreased from 9.8% for Second Quarter 1999 to 9.2% for Second
Quarter 2000, and from 10.0% for the 1999 YTD Period to 9.7% for the 2000 YTD
period.
Restaurant depreciation and amortization increased $21,814 for Second Quarter
2000 compared to Second Quarter 1999 and increased $18,586 for the 2000 YTD
Period compared to the 1999 YTD Period. The Company incurred preopening costs
of $158,691 and $184,354 for the Second Quarter 2000 and 2000 YTD Period,
respectively, relating to the Virginia Beach, Virginia and Lakeforest Mall
Gaithersburg, Maryland locations.
General and administrative expenses include the cost of corporate
administrative personnel and functions, multi-unit management and restaurant
management recruitment and initial training. Such expenses were $802,452 for
Second Quarter 2000, an increase of $20,869, or 2.7%, compared to Second Quarter
1999. As a percentage of net sales, general and administrative expenses
decreased to 10.7% for Second Quarter 2000 from 11.5% for Second Quarter 1999.
General and administrative expenses for the 2000 YTD Period increased $94,977,
or 5.3% from $1,807,313 in 1999 YTD Period. Despite the increase in general and
administrative expenses, the Company remains committed to controlling overhead
expenses, and expects general and administrative expenditures to decrease as a
percentage of sales as a result of overall operating leverage.
Depreciation and amortization increased $12,065 for Second Quarter 2000 as
compared to $72,616 in the Second Quarter 1999 and increased $23,734 for 2000
YTD Period compared to $171,915 in the 1999 YTD Period. The increased expense
for both reporting periods is a function of purchases of equipment. Depreciation
and amortization included amortization expense of approximately $43,000 for both
the Second Quarter 2000 and 1999 and approximately $99,000 for both year-to-date
periods.
8
The Company earned $26,269 in investment income for Second Quarter 2000,
compared to investment income of $30,373 for Second Quarter 1999. Investment
income for 2000 YTD Period was $54,605 compared to $67,167 in 1999 YTD period.
The decrease for both the quarterly and year-to-date periods is the result of
reduced levels of invested funds and slightly lower yields. Interest expense of
$20,573 in Second Quarter 2000 compared to $5,763 for the Second Quarter 1999
was attributable to the extension of a $3,000,000 line of credit by the
Company's principal bank. For the 2000 YTD Period interest expense of $27,634
increased by $14,188 as compared to the 1999 YTD Period.
Net loss for Second Quarter 2000 was $581,701, or $0.05 per share on a basic
and diluted basis, compared to $339,671, or $0.03 per share on a basic and
diluted basis, for Second Quarter 1999. Net loss for the twenty-eight weeks
ended July 16, 2000 was $1,330,661, or $0.12 per share on a basic and diluted
basis, compared to $652,165, or $0.06 per share on a basic and diluted basis for
the twenty-eight weeks ended July 18, 1999. Exclusive of the impact of new
stores (Virginia Beach, VA and Lake Forest, Gaithersburg, MD), the net loss
would have been reduced by approximately $216,000 for the Second Quarter 2000
and $243,000 for the 2000 YTD Period, and net loss per share amounts would have
been reduced by $0.02 for both measured periods. Management expects that the
Company will continue incurring losses until sufficient revenue is generated
from new units to absorb start-up expenses and the general and administrative
costs associated with developing and running the Company.
Liquidity and Capital Resources
The Silver Diner's operations are subject to significant external influences
beyond its control. Any one, or any combination of such factors, could
materially impact the actual results of the Diner's operations. Those factors
include, but are not limited to: (I) changes in general economic conditions,
(II) changes in consumer spending habits, (III) changes in the availability and
cost of raw materials, (IV) changes in the availability of capital resources,
(V) changes in the prevailing interest rates, (VI) changes in the competitive
environment and (VII) changes in the Federal or State laws governing the
business.
At July 16, 2000, cash and cash equivalents were approximately $1.87 million,
the Company had $1.27 Million of long-term debt, of which $17,800 becomes due
and payable within the next twelve months and stockholders' equity was
approximately $ 15.99 million. Cash and cash equivalents increased
approximately $749,000 during Second Quarter 2000, due primarily to the proceeds
from the long-term credit facility.
The Company's principal future capital requirement is expected to be the
development of restaurants. Currently, the typical building, equipment
(including smallwares) and site development cost of a new Silver Diner prototype
is expected to be approximately $1.3 to $1.5 million as compared to an average
cost of $1.8 million for the last five units constructed prior to 1999,
including the building, equipment and site costs. There is no assurance that the
Company's prototype redesign plans will produce significant savings in the
prototype costs. Land generally will be leased. When land is purchased,
management may pursue a sale-leaseback or debt financing strategy following the
restaurant's opening.
The Virginia Beach, VA restaurant opened for business on June 14, 2000 and the
Lakeforest Mall restaurant is currently under construction and expected to open
in the third quarter of 2000. The Company has been pursuing additional
locations in the Mid-Atlantic area from North Carolina to Southern New Jersey.
To that end, management is presently involved in active negotiations with
prospective landlords at several locations for additional Silver Diner sites.
Management believes that the Company's current capital resources and expected
2000 cash flow will be adequate to construct the Virginia Beach and Lakeforest
units. In October 1999, the Company entered into a loan agreement with its lead
bank to extend a $3 million line of credit, of which the proceeds would be used
to finance site acquisition, development and construction of the new Silver
Diner restaurants. The original loan agreement was amended and a replacement
agreement was executed in May 2000. The Company has drawn $1,000,000 under the
credit facility to fund construction related costs. Additional financing will be
required to finance growth beyond 2000. Financial covenants contained in the
credit facility may limit the
9
Company's' ability to incur new debt or draw all funds under the credit facility
which may restrict the Company's' ability to expand. Under the credit facility,
the Company may only draw additional funds to the extent that its cash flow (as
defined in the formal credit facility documents) is equal to or greater than 1.3
times the debt service coverage requirements (as defined in the formal credit
facility documents). Currently, the Company meets or exceeds the debt service
coverage requirements of the credit facility.
Year 2000 Issue and Compliance
We successfully completed our program to ensure Year 2000 readiness. As a
result, we had no Year 2000 problems that affected our business, results of
operations or financial condition.
Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Part II. Other Information
Item 1. Legal Proceedings
No reportable events or material developments in reported events
occurred during the period ended July 16, 2000.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 4. Submission of Matters to a Vote of Securities Holders
The annual meeting of stockholders of the Company was held on June 16,
2000. The following items were voted on and approved by a majority of
the stockholders:
1. Re-election of the Company's directors.
Director Voted For Withheld
-------- --------- --------
Robert T. Giaimo 9,189,787 116,527
Catherine Britton 9,191,637 114,677
Michael Collier 9,255,873 50,441
Ype Von Hengst 9,253,823 52,491
Edward H. Kaplan 9,254,873 51,441
Louis P. Neeb 9,249,973 56,341
Charles M. Steiner 9,244,373 61,941
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(A) EXHIBITS
27. Financial Data Schedule (Submitted electronically for SEC
information only)
(B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the period ended July
16, 2000.
Item 3 is not applicable and has been omitted.
10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SILVER DINER, INC.
-----------------------------------------
(Registrant)
August 30, 2000 /s/ Craig A. Kendall
- --------------------------- -----------------------------------------
Date Craig A. Kendall
Vice President, Finance
(Duly Authorized Officer and Principal
Financial Officer)
11